Basis: The proposed regulatory action is mandated by §§ 54.1-113, 54.1-201, 54.1-304, and 54.1-308 of the Code of Virginia. To comply with these statutes, the Board for Barbers and Cosmetology evaluates its current and projected financial position, and determines the type of fees and amounts to be established for each fee that will provide revenue sufficient to cover its expenses.

Section 54.1-113 requires that, following the close of any biennium, when the account for any regulatory board within the Department of Professional and Occupational Regulation shows expenses allocated to it for the past biennium to be more than 10% greater or less than moneys collected on behalf of the board, it shall revise the fees levied by it for certification or licensure and renewal thereof so that the fees are sufficient but not excessive to cover expenses.

Section 54.1-201 describes each regulatory board's power and duty to levy and collect fees for the certification or licensure and renewal that are sufficient to cover all expenses for the administration and operation of the regulatory board and a proportionate share of the expenses of the department.

Section 54.1-304 describes the power and duty of the department director to collect and account for all fees prescribed to be paid into each board and account for and deposit the moneys so collected into a special fund from which the expenses of the Board of Professional and Occupational Regulation, the regulatory boards, and the department shall be paid.

Section 54.1-308 provides for compensation of the department director, employees, and board members to be paid out of the total funds collected. This section also requires the director to maintain a separate account for each board showing moneys collected on its behalf and expenses allocated to the board.

Purpose: The intent of the proposed amendment is to increase licensing fees for regulants of the Board for Barbers and Cosmetology. The board must establish fees adequate to support the costs of board operations and a proportionate share of the Department of Professional and Occupational Regulation's operations. By the close of the current biennium, fees will not provide adequate revenue for those costs.

The Board for Barbers and Cosmetology provides protection to the safety and welfare of the citizens of the Commonwealth by ensuring that only those individuals who meet specific criteria set forth in the statutes and regulations are eligible to receive a esthetician, master esthetician, esthetics spa, or esthetics school license, or esthetics instructor or master esthetics instructor certification, or temporary permit. The board is also tasked with ensuring that its regulants meet standards of practice that are set forth in the regulations. Without adequate funding, complaints against regulants, brought to the attention of the board by citizens, could not be investigated and processed in a timely manner. This delay could provide an opportunity for a dishonest esthetician, master esthetician, esthetics instructor, master esthetics instructor, esthetics spa, or esthetics school waiting for action to be taken by the board, to continue to work and harm additional citizens.

The Department of Professional and Occupational Regulation receives no general fund money, but instead is funded almost entirely from revenue collected through applications for licensure, renewals, examination fees, and other licensing fees. The department is self-supporting and must collect adequate revenue to support its mandated and approved activities and operations. Fees must be established at amounts that will provide that revenue. Fee revenues collected on behalf of the boards fund the department's authorized special revenue appropriation.

The Board for Barbers and Cosmetology has no other source of revenue from which to fund its operations.

Substance: The existing regulations are being amended to increase the fees applicable to several licensing items, as follows:

Issues: The primary issue for the proposed fee increase is the Department of Professional and Occupational Regulation's statutory requirement to comply with § 54.1-113 of the Code of Virginia (the Callahan Act) which requires the department to review each board's expenditures at the close of each biennium, and to adjust fees if necessary. For the 2008-2010 biennium, the Board for Barbers and Cosmetology is expected to have a $86,784 cash balance and a Callahan Act percentage of 1.5 and for the 2010-2012 biennium, the board is expected to incur a deficit of $821,453 and a Callahan Act percentage of -13.2.

The regulatory review process generally takes a minimum of 18 months, and so it is essential to consider fee increases now, before the deficit increases to an amount greater than previously anticipated. To avoid increasing the deficit the new fees will need to become effective early in the 2010-2012 biennium. Otherwise, the board's deficit will increase to the point that the new fees would be inadequate to provide sufficient revenue for upcoming operating cycles, which could result in the board having to consider additional fee increases in the near future.

The advantage of these changes is that the regulatory program will be able to continue to function in order to protect the public. The disadvantage is that these changes will increase the cost of the license to the regulated population; however, the impact of these changes on the income of the regulated population should not be of a great significance compared to their level of income.

The Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. The Board of Barbers and Cosmetologists (Board) proposes to raise fees for estheticians, master estheticians, esthetics instructors, master esthetics instructors, esthetics spas and esthetic schools. The Board also proposes to change the regulatory text so that it is clear that licensees who reinstate their licenses must pay a renewal fee as well as a reinstatement fee.

Result of Analysis. The benefits likely exceed the costs for one of these proposed changes. For all other changes, costs likely exceed benefits.

Estimated Economic Impact. Currently, estheticians and master estheticians pay $55 for initial licensure (either by application or endorsement), $55 for biennial renewal and $110 for reinstatement. The reinstatement fee is currently listed as $55 but licensees must pay both the renewal fee and reinstatement fee in order to reinstate a lapsed license. Esthetics instructors and master esthetics instructors pay $60 for initial licensure (either by application or endorsement), $60 for biennial renewal and $120 for reinstatement. The reinstatement fee is currently listed as $60 but licensees must pay both the renewal fee and reinstatement fee in order to reinstate a lapsed license. Esthetics spas must have a current facilities license in order to be open in the Commonwealth. Currently, an initial facilities license is $90; biennial renewal of that license is $90 and reinstatement is $180. The reinstatement fee is currently listed as $90 but licensees must pay both the renewal fee and reinstatement fee in order to reinstate a lapsed license. Currently, esthetics schools must pay $120 for an initial license, $120 for biennial license renewal and $240 for reinstatement. The reinstatement fee is currently listed as $120 but licensees must pay both the renewal fee and reinstatement fee in order to reinstate a lapsed license.

The Board now proposes to raise fees for all categories of licensure. Under this proposal, current fees will increase between 28% and 42%. Below is a comparison table for current and proposed fees:

FEE TYPE

CURRENT FEE

PROPOSED FEE

Estheticians

Master Estheticians

Initial Licensure by Application

$55

$75

Initial Licensure by Endorsement

$55

$75

Renewal

$55

$75

Reinstatement

$110

$150

Esthetics Instructors

Master Esthetics Instructors

Initial Licensure by Application

$60

$85

Initial Licensure by Endorsement

$60

$85

Renewal

$60

$85

Reinstatement

$120

$170

Esthetics Spas

Initial Application

$90

$115

Renewal

$90

$115

Reinstatement

$180

$230

Esthetics Schools

Initial Application

$120

$145

Renewal

$120

$145

Reinstatement

$240

$290

The Board reports that these fee increases are necessary in order to meet Callahan Act requirements for cash reserves. Specifically, the Board reports that it has incurred increasing costs for information systems development, enforcement activities, application processing and customer services over the last biennium. While it is true that raising fees will likely allow the Board to increase its revenues to meet anticipated budget deficits, licensees (and probably the public) would likely benefit more from efforts to decrease Board costs so that they more closely match current revenues.

Board staff reports, for instance, that software purchased to facilitate automation of the licensure process is a considerable and increasing expense. This new software is not a custom built product so it is anticipated that more money (beyond the initial purchase price) will have to be spent in order to allow the automation software to do what the Board needs it to do. The Board anticipates that implementation of this automated system will increase system stability but will not increase far term efficiency so that fewer employees are needed (and so that long run costs for licensees decrease). Instead more employees will likely need to be hired once the automated system is in place. Although licensees may benefit somewhat from being able to submit applications and fees online, that benefit is likely outweighed by large near-term and far-term costs for this system.

Businesses and Entities Affected. The Department of Professional and Occupational Regulation (DPOR) reports that, as of June 30, 2009, the Board licenses 2,295 estheticians, 843 master estheticians, 49 esthetics instructors, 110 master esthetics instructors, 255 esthetics spas and 43 esthetic schools. All of these entities will be affected by fee increases. DPOR also reports that most of these entities would meet the definition of small businesses.

Localities Particularly Affected. No locality will be particularly affected by this proposed regulatory action.

Projected Impact on Employment. This regulatory action will likely have little impact on employment in the Commonwealth.

Effects on the Use and Value of Private Property. This regulatory action will likely have little effect on the use or value of private property in the Commonwealth.

Small Businesses: Costs and Other Effects. Small businesses in the Commonwealth will incur the cumulative costs of licensure fees that will increase on account of this regulatory action.

Small Businesses: Alternative Method that Minimizes Adverse Impact. There are several actions that the Board could take that might mitigate or eliminate the necessity of raising fees. The Board could slightly lengthen the time that it takes to process both license applications and complaints so that staff costs could be cut. This option would benefit current licensees but would slightly delay licensure, and the ability to legally work, for new applicants. Because DPOR reports that the new automated system that has been purchased is not anticipated to cut processing times or increase efficiency, and thus lower costs, in the long run; licensees would likely benefit if DPOR either reinstituted their old system or found another automated system that could be expected to increase future efficiency and decrease the need for future staff increases.

Real Estate Development Costs. This regulatory action will likely have no effect on real estate development costs in the Commonwealth.

Legal Mandate. The Department of Planning and Budget (DPB) has analyzed the economic impact of this proposed regulation in accordance with § 2.2-4007.04 of the Administrative Process Act and Executive Order Number 36 (06). Section 2.2-4007.04 requires that such economic impact analyses include, but need not be limited to, the projected number of businesses or other entities to whom the regulation would apply, the identity of any localities and types of businesses or other entities particularly affected, the projected number of persons and employment positions to be affected, the projected costs to affected businesses or entities to implement or comply with the regulation, and the impact on the use and value of private property. Further, if the proposed regulation has adverse effect on small businesses, § 2.2-4007.04 requires that such economic impact analyses include (i) an identification and estimate of the number of small businesses subject to the regulation; (ii) the projected reporting, recordkeeping, and other administrative costs required for small businesses to comply with the regulation, including the type of professional skills necessary for preparing required reports and other documents; (iii) a statement of the probable effect of the regulation on affected small businesses; and (iv) a description of any less intrusive or less costly alternative methods of achieving the purpose of the regulation. The analysis presented above represents DPB's best estimate of these economic impacts.

Agency's Response to the Department of Planning and Budget's Economic Impact Analysis: Concur with the approval. However, we do not agree with the statements made by DPB in the EIA regarding the new licensing system. As explained to DPB staff in a meeting, the new software package is being purchased to replace an unsustainable legacy system that is currently over two decades old, and operating on an unsupported operating platform created by the Digital Corporation and currently owned by Hewlett-Packard. Migration from the old system to the new system is necessitated by the need to sustain licensing operations.

The legacy system had twenty years of programming customizations built into the system, and those customizations resulted in significant automation of processes, constructing many business rules into system operations, and allowed for the development and institutionalizing of training and operating that system. The new, commercial off the shelf (COTS) solution does not include many of our automated processes, handles information differently, and has made all of the agency's staff novices at understanding and operating the system. As a result of these realities we don't expect to be operating with less staff or as efficiently in the next few years. The statement, "Instead more employees will likely need to be hired..." speaks to the operational necessity for the next few years as processes are customized, staff gains efficiency and other efforts like on line license applications are implemented to reduce staffing requirements and contribute to efficiencies. The closing sentence of this section offers the most conservative of positions where it characterizes the balancing of on line applications as being "likely outweighed." We are clearly more optimistic in hoping the continued unfolding of the new licensing system offers substantial improvements in service times, ease of access for citizens, and reduced staff time by making the licensing process paperless. Further, once the development and implementation of the new system is complete, DPOR will be provided the source code for the new system by the vendor and will be able to maintain, customize, and respond to the near certain changing requirements of our mission for decades to come.

Finally, DPOR was directed by VITA to purchase a COTS product to replace our legacy system. After going through the procurement process, the new product was selected based on the criteria established for the solicitation. In conclusion, DPOR cannot continue to rely on our existing, legacy system as it runs on an unsupported platform. Further, commencing another procurement to select and purchase another system would add additional expense and time to this effort with no assurance of a different outcome and would also likely involve time consuming and costly litigation in terminating the current contract.

Summary:

The proposed amendments will increase fees for the Board for Barbers and Cosmetology to ensure that revenues are sufficient but not excessive to cover ongoing operating expenses. The board's most recent increase in fees became effective in July 2002. Since 2002, licensure programs have become effective for the following professions: wax technician (2004), tattooing (2006), hair braiding (2006), body piercing (2007), and esthetics (2007). The board has incurred an increase in costs for enforcement activities, information systems development costs, and application processing and customer support services. Current fees are not adequate to reduce the deficit and pay continuing operating costs. Without the proposed fee increases, the board's deficit will continue to increase and the Department of Professional and Occupational Licensing will not collect adequate revenue to pay for operations.

All costs incurred in support of board activities and regulatory operations are paid by the department and funded through fees paid by applicants and licensees. All boards within the Department of Professional and Occupational Regulation must operate within the code provisions of the Callahan Act (§ 54.1-113 of the Code of Virginia) and the general provisions of § 54.1-201 of the Code of Virginia. Each regulatory program's revenues must be adequate to support both its direct costs and a proportional share of agency operating costs. The department allocates costs to its regulatory programs based on consistent, equitable, and cost-effective methodologies.